Areas of Construction

Contract formation-Types of construction contracts
Lump-sum contracts-In a lump-sum or fixed price contract, the prime contractor agrees to complete the project, as described in the contract documents, for a fixed price. This may be a total, lump-sum price for the job, or it may have a fixed price per unit for each of several items of work, so that although the price per unit is fixed, the total cost of the job will depend of the amount of work that must be built.
Cost-plus contracts-A cost-plus contract provides that the contractor is reimbursed by the owner for all construction costs, plus an amount to compensate the contractor for its overhead and another amount as the fee. The fee many be a percentage of the contract price or a fixed amount.
Cost-plus with guaranteed maximum price-In a guaranteed maximum price contract, the owner reimburses the contractor for costs, overhead, and fees, as in a cost-plus contract but stops paying once the guaranteed maximum contract price is reached.

Breach of contract- A breach of contract is when there is a failure to perform according to the terms of the contract. Typical breaches involve disputes over interpretation of contract terms. Differing interpretation by each party are often caused by ambiguities when the contract terms do not clearly define each party’s obligations, or discrepancies and conflicts within the contract documents.

Default- When any of the parties involved in a contract have failed to perform.

Termination- Owners Right to eject contractor from job. In addition to removing the contractor from the jobsite, the owner may take possession of the unfinished work and of all contractor’s tools, , construction equipment and machinery at the site. The owner may use or authorize third party contractors to use the tools for completing the project. When this happens, the Owner and any replacement contractors may not be liable to the terminated contractor for the cost or value of any property or equipment used in the course of the project completion.

Payment disputes- Payment disputes are often the result of other factors such as scope of work, value of work, extra work, change orders or even under-funded or poorly managed projects. There are specific laws that prohibit any type of pay-if-paid contract provisions.

Arbitration – a legally binding method of dispute resolution that is conducted outside the court system. It is believed that it allows you to resolve disputes more quickly and cheaply than by going to court. There are specific rules that are followed and instead of judges and juries, there will be an arbitrator or a panel of arbitrators that decide the dispute.

Changed Conditions- When the jobsite conditions have changed since the contract was awarded.
Differing site conditions – Actual site conditions are not the same as described at the time the contract was awarded. Similar to changed conditions with the exception that nothing may have changed, and it is often the obligation of the contractor to confirm site conditions prior to entering into a contract, despite how the jobsite is described in the plans and specifications.

Extra work- Extra work is work that the contract does not specify. It can be difficult to decide whether work performed was part of the contract or completely separate tasks. There are often specific procedures in contracts that must be followed in order to receive credit for extra work.

Changes-Change orders are common in construction and there are usually specific procedures in contracts that must be followed in order to receive credit for change order work.

Scope of work-disputes specifically related to the ambiguities or discrepancies found in contract terms and conditions related to the tasks contracted for.

Bidding disputes - most often appear in public works contracting bids. Typical disputes arise from bidding errors, lack of responsiveness, responsibility, second low bidder. There are specific procedures that must be followed. In public works projects, it may require filing suit as part of the bid protest process.

Delay claims-the additional costs to a party when a project experiences unexpected delays. The difficulty is in proving who actually caused the delay, whether the delay was on the critical path, and how much it actually cost the affected parties.

Defects- When work is not performed to trade standards, there is a cost associated with bringing the work up to trade standards and repairing any other damage caused by the defect.

Bond/surety claims- in most cases, by the time a claim on the bond is considered, the project is in serious trouble. We hope projects will go without a hitch, but sometimes things go wrong. That is one of the reasons owners bond their projects - to have someone to turn to when the contractor gets into trouble. The other reason is to have an independent third party, a surety, verify that the contractor is, in fact, qualified to perform the job. The surety evaluates the ability of the prospective contractor to confirm if they are able to complete the project. This is a guarantee to the owner that the project will be completed.

Business formations- There are certain business entities that contractors may conduct business as, such as a sole proprietor, partnership or corporation. There are also other business types that are prohibited from doing business as a licensed contractor. There are also numerous legal details unique to contractors’ licenses when it comes to buy and selling a business.

Private works-any projects that are funded by private or corporation money for the use and benefit of private owners.

Public works- projects that are funded with public money, constructed by the government such as a municipality, the State or Federal government and for the public good. Examples would be highways, dams, some hospitals









Prevailing wages Almost all public works construction projects are required by the Davis Bacon Act to pay all workers who work on the public works project the prevailing wage in the local area. This wage typically approximates the local union scale for the particular trade. This rate is usually much higher than the wages paid for private works.

CSLB hearings-Contractors are governed by the Contractors State License Board, and one of their roles is to investigate disputes or allegations of contractor misconduct. The CSLB has the power to revoke a contractor’s license based their finding of a violation of contractors’ laws, regulations and standards governing construction.

Liquidated damages –damages are said to be liquidated when the amount of damages recoverable in the event of a specified breach is agreed at the date of the contract. A liquidated damages provision will be included in the contract. When damages are not predetermined/assessed in advance then the amount recoverable is said to be 'at large' (to be agreed or determined by a court or tribunal in the event of breach).

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